Unleashing Women’s Economic Potential

Barriers Need to Be Eliminated Worldwide and at Home

By Julie Ajinkya
Posted on March 7, 2012, 9:00 am

The impact of women’s entrepreneurship on the global economy cannot be underestimated. In 2010, 104 million women in 59 of the world’s economies started and managed new business ventures, generating millions of jobs and contributing substantially to their domestic, as well as the world’s, gross domestic product. Around the world when women start businesses, the ripple effects are tremendous—they create jobs for others, build up household income, and invest accumulated savings back into the community in the form of health care, education, and food.

Despite these proven truths, barriers to women’s economic empowerment still exist. On International Women’s Day, let us take note of these challenges to women’s economic participation not only in countries around the world but also in the United States. Given that women of color represent the fastest-growing segment of the women-owned business market here at home, it would be wise to consider how to unleash this population’s economic potential for the sake of the entire country.

Global women’s economic empowerment

The State Department’s Economic Security and Empowerment programs seek to unlock what the agency calls a vital source of economic growth around the world: women. These programs range from assisting internally displaced Kenyan women in improving their small businesses with training in business skills and improving their access to micro-credit loans, to supporting the production of traditional Timorese women’s woven art with training for production and quality control and providing wholesale and retail outlets for products within Timor-Leste and overseas.

In all of these programs, the goal is the same: Make sure that countries around the world appreciate the economic contribution and potential that women present to their economies and cooperate with reducing the barriers that still exist to women’s full and unencumbered participation in the workforce.

Secretary of State Hillary Clinton outlined the significant benefits that we could expect from closing this gender work gap in her remarks at the Asian Pacific Economic Cooperation Women and the Economy Summit in September 2011:

Economic growth: A McKinsey study found that a modest increase in women’s overall share of labor in the United States—women went from holding 37 percent of all jobs to nearly 48 percent over the past 40 years—accounts for nearly one-quarter of the current GDP. A Goldman Sachs study shows that a reduction in barriers to female labor force participation would increase America’s GDP by 9 percent, the Eurozone’s GDP by 13 percent, and Japan’s GDP by 16 percent. Narrowing the gender gap could also lead to a 14 percent rise in per-capita income by the year 2020 in China, Russia, Indonesia, the Philippines, Vietnam, and Korea.

Increased productivity: A World Bank study found that managers could significantly increase productivity per worker by 25 percent to 40 percent by eliminating discrimination against female workers and managers. Research also shows that companies with more women board directors outperform companies with the smallest number by 66 percent in return on invested capital, 53 percent in return on equity, and 42 percent in return on sales.

Stronger communities: Women around the world are known to invest first and foremost in their families and surrounding communities. Data shows that women are stronger savers than men, and with these savings, women invest in those around them. By spending more of their earned income on food, health care, and education for themselves and their families, women reinvest monies into their surrounding communities, multiplying the effect of their economic participation by creating more jobs and diversifying local economies.

Women are clearly engines of economic growth around the world. Denying women’s workforce potential and entrepreneurship denies us all.

Women’s economic empowerment in the United States

In the United States one group that often gets overlooked in terms of their entrepreneurial potential is women of color—despite the fact that women of color own 1.9 million of the 7.2 million firms with a majority-female ownership, generating $165 billion in revenues and employing 1.2 million people.

Latina-owned businesses, in fact, represent the fastest-growing segment of the women-owned business market. Between 2002 and 2007 their businesses increased by 172 percent, compared to Latino male firms that increased by 140 percent and white-female-owned firms, which increased by 52.9 percent.

Yet the Great Recession that began at the end of 2007 hit women of color at disproportionate rates and ate away at their economic gains. While 8 percent of white women were unemployed as the main household earner from 2008 to 2010, this number was 25 percent for African American women and 22 percent for Latina women in the same period.

Women of color also reported having more trouble meeting monthly expenses such as monthly utility bills, rent, or mortgages. While 39 percent of all women reported difficulty paying utility bills, the number rose to 52 percent for African American women and 48 percent of Latino women. Twenty-one percent of white women reported having problems making rent or mortgage payments, while 33 percent of African American women and 31 percent of Latina women reported similar problems.

We know women of color have strong entrepreneurial potential, so what can we do to make sure we harness this capacity and translate it into the economic growth, increased productivity, and stronger communities that we already know women’s economic empowerment leads to?

Studies show that businesses owned by women of color face particular challenges to success apart from discrimination. These obstacles include lower levels of education and experience, the concentration of such businesses in industries particularly vulnerable to economic downturns, and the especially problematic difficulty of securing the capital necessary for growth.

While many business owners rely on access to established capital markets and networks to access financial capital, women of color may be disadvantaged because they are traditionally excluded from such networks. Nonetheless, research suggests that women of color may be able to tap into racial and ethnic social networks as vital sources of informal loans. We do know that these kinship networks have been used in particularly tough times—nearly 50 percent of African American women and 41 percent of Latina women report borrowing money from a friend or relative to meet expenses, while 23 percent of white women had resorted to similar networks.

In order to promote entrepreneurship among women of color, we need to invest in programs that provide technical assistance and education to make sure the businesses they start have a better chance at success. We also need to make sure government set-aside programs are still supported, as they are one of the primary reasons that women of color contractors have stayed competitive in their bids—particularly as cutbacks in federal spending have precipitated declines in bids and awarded contracts.

As our country rapidly approaches the day when communities of color become the majority of our population, we will face significant loss if we continue to overlook the distinct entrepreneurial spirit of women of color. Just as Secretary Clinton argued to the APEC Women and Economy Summit, by “unleashing and harnessing the economic potential of women, we will see a new and better future.”

Julie Ajinkya is a Policy Analyst with the Progress 2050 project at the Center for American Progress.